$20 Fast Food Wage in California Will Increase Wages in Other Sectors

Starting April 1, limited-service restaurant chains with at least 60 restaurants nationwide will be required to pay California workers at least $20 an hour, or 25% more than the general minimum wage state rate of $16 per hour, although some cities and counties have higher minimums.

These wages will make the fast food industry more attractive to workers – and likely cause other employers to raise wages to compete for labor.

“The impacts will extend beyond just limited-service restaurants to truly include any business competing for a similar level of labor, whether full-service restaurants or other sectors of retail and others,” said Brian Vaccaro, an analyst at Raymond James. Business insider. “This will likely have broader inflationary consequences.”

Andy Barish, an analyst at Jefferies, noted that companies with hourly staff, such as convenience stores, will have to work harder to compete for labor if their employees can “cross the street » to quickly access a better-paid job. -gastronomic restaurant.

If limited-service restaurants raise their wages, “everyone will have to embrace it because it’s a free market,” said Danilo Gargiulo, a Bernstein analyst. “So ultimately, everyone will have to do it.”

And it’s not just a one-time jump to $20 that businesses need to worry about. A fast food council could raise the minimum wage by up to 3.5% per year, based on inflation.

Fast food and fast food chains have already announced plans to raise menu prices in California to offset rising wages.

Staff at table service restaurants might not want to transition to fast food jobs

The legislation, AB 1228, applies to restaurant chains that offer limited or no table service where customers pay for their food and drinks before consuming them. Besides businesses selling typical fast food like hamburgers, chicken, sandwiches and pizza, the legislation also covers those serving coffee, boba and pretzels.

California has a huge hotel industry. As of May 2022, 1.5 million people worked in jobs related to food preparation and serving, accounting for 8.5% of all jobs in the state, according to data from the U.S. Bureau of Labor Statistics. United.

Most full-service restaurants have remained silent on whether they expect the legislation to impact their own payroll and therefore their prices. BI contacted nine casual dining and full-service restaurant chains to ask if they expected the legislation to impact their own wages, but received no response.

Cheesecake Factory CFO Matt Clark told investors in November that the minimum wage could have a “ripple effect” beyond just limited-service restaurants. Clark said the Cheesecake Factory, which has 38 restaurants in California, may have to raise wages and reassess its menu prices in response.

Vaccaro said he doesn’t expect servers at full-service restaurants to be drawn to limited-service restaurants because they typically make well over $20 an hour when tips are included, but he said wages for backroom workers would likely increase. Sharon Zackfia, an analyst at William Blair, told BI that the new legislation could prompt more full-service restaurants to start sharing tips with kitchen staff “to isolate that work in the back room.”

BJ’s Restaurants CEO Greg Levin is optimistic. He told investors in October that the chain’s kitchen staff in California typically earned close to or more than $20 an hour, while its front-of-house workers in the state “considerably” earned that amount when compared. included tips.

“So I think we have an inherent advantage there,” Levin said. He added that the legislation would reduce the price gap between limited-service restaurants and full-service restaurants.

Zackfia wondered if employees of dine-in restaurants would want to move into fast-food jobs anyway.

“If someone is a chef and they actually make real food, and they cut and dice and they really cook, do they really want to go across the street and heat up or fry things?” Zackfia said.

“It’s a very different dynamic.”

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